TRLPC: Private equity firms primed to target middle market in 2H
By Jonathan Schwarzberg
NEW YORK, July 10 (Reuters) - Middle market buyout loans offer the best hope of boosting low borrowing levels by private equity firms as sponsors battle cash-rich corporate buyers and U.S. regulators' leveraged lending guidance that are restricting the amount of debt that banks can offer.
After a weak second quarter for private equity borrowing, lenders are targeting middle market companies for dealflow, according to industry players. Borrowing by private equity firms of $91.3 billion in the second quarter of 2015 was down 16.3 percent from $109.1 billion a year earlier, according to Thomson Reuters LPC data.
Although U.S. targeted M&A volume hit a record $1 trillion in the first half of 2015, according to Thomson Reuters, most of this activity was due to purchases by investment grade companies rather than private equity borrowing. Cash-rich companies were able to outbid sponsors and were not hampered by banks' inability to underwrite highly leveraged loans.
"It's hard to see it turning around into a good year for sponsor deals," said a senior investment banker. "I think at best it will be a medium year."
Private equity firms are also facing potential headwinds and increased market volatility from macroeconomic events in other parts of the world, as Greece faces a possible exit from the eurozone, Puerto Rico is up against a potential default and China pumps billions of dollars into its ailing stock market, all of which is curbing banks' and investors' risk appetite.
"The market has seen some volatility stemming from Greece, Puerto Rico and China and new issue has slowed significantly," a loan investor said.
MIDDLE MARKET HAVEN Continuación...